Although a host of new faith-based lending or savings accounts have been launched in the UK market, only 54 percent of Muslim consumers have tried any of them, according to the 2019 Islamic Finance Consumer Report from Gatehouse Bank.
The UK is home to an estimated four million Muslims, who contribute £30 billion ($39 billion) to the British economy, according to the Muslim Council of Britain.
Moreover, the UK Islamic finance sector holds an estimated £15 billion ($19 billion) of assets, the largest outside the Middle East and Asia; nevertheless, Islamic retail banking is yet to fully take hold in the country, according to experts.
“EVEN MUSLIMS DON’T UNDERSTAND IT”
Charles Haresnape, CEO of Gatehouse Bank, a British Islamic finance challenger bank with assets of around $1.2 billion, said, “The problem is that most people don’t really understand Islamic finance; even Muslims don’t understand it.”
He said that Gatehouse is intent on developing the Islamic finance sector in Britain. “We commissioned our latest report in conjunction with [Islamic marketing agency] Ogilvy Noor because there wasn’t any meaningful research about the market.”
Founded in 2008, Gatehouse is part of a small clutch of Islamic lenders in the UK, led in size by Qatar-owned Al Rayan Bank, which holds assets of $1.8 billion.
Haresnape predicts growth for the UK Islamic finance market, driven by the country’s expanding young Muslim population, but said awareness and education would be key factors in driving uptake.
“The [Islamic finance] market will grow significantly if we can get the message out there. There is some positivity [in our survey] but we need to create awareness to get more traction,” Haresnape said. “Islamic banking can offer better deposit rates with the same guarantees as conventional banking; it’s up to us to make it clear what is on offer. […] As more competition comes in, it may help to grow the market.”
ADDRESSING NEGATIVE PERCEPTIONS
The Gatehouse study found that more work needs to be done to increase awareness and address negative perceptions of Islamic finance. Only a third of non-users view Islamic finance “favourably”, and almost two-thirds of Muslim consumers are “sceptical” about the veracity of Shariah-compliant products, the survey found.
Shelina Janmohamed, Vice President at Ogilvy Noor, told Zawya, “The [Islamic finance] industry needs to look at where all the key barriers are and ask whether an individual institution or an industry should invest … my feeling is that there needs to be an industry-wide campaign for Muslim communities.”
“Muslims are often looking to their peers to see if they should take up Islamic finance. So if banks can jumpstart the communities with some understanding, that would trigger quite a wave of interest and uptake,” Janmohamed said.
According to the Gatehouse report, friends, family and colleagues are the most common sources of information among those who have never used Islamic finance; 34 per cent of those yet to use Shariah-compliant products have heard about it through these channels.
MORE PRODUCTS NEEDED
Omar Shaikh, an advisory board member for the Islamic Finance Council UK (IFCUK), London, said that Islamic finance is still a young industry that hasn’t yet managed to build a “proper” retail portfolio.
Shaikh said that the industry had been increasing its offerings, such as the recently introduced buy-to-let financing package from Gatehouse and a range of industry-wide savings accounts, but much more needs to be done.
He also noted that there is room for growth in areas such as car financing, pilgrimage tour financing, SME funding and insurance. “With such a small portfolio, it’s not surprising that the industry doesn’t have enough penetration. Admittedly, there are some regulatory challenges with formulating new [Islamic finance] products, but no one has even tried to take it on and crack it yet.”
However, Shaikh said, Muslim deposit offerings have become more “visible”, regularly featuring on mainstream media channels and rankings. “The whole world of Islamic savings has become very attractive and has a broader appeal because the rates can be high.”
He added that the British population is generally undereducated about personal finance, both conventional and faith-based offerings. “There is a big awareness gap generally, plus a lot of Muslims don’t even know that Islamic finance products exist.”
He recommended that individual banks carry out systematic structured campaigns with strong roadshow and marketing elements. “The first phase of bringing Islamic finance into the UK is complete; it has been successful. They have good profitable lending books. Now it’s about setting the stage for phase two.”
(Writing by Alicia Buller, editing by Seban Scaria email@example.com)
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